European steel industry needs modern trade defence instruments - EUROFER
EurActiv Slovakia reported that as per Mr Axel Eggert Director General of EUROFER, the European steel industry is confronted with unfair competitors outside the EU, and the Union’s climate and energy policy. He spoke to EurActiv Slovakia’s Editor-in-Chief Zuzana Gabrizova and Martina Dupáková.
Q - What are the main issues the steel industry is facing currently in Europe?
A - First, we are still facing recession in the steel industry and we are still not out of the crisis fully. For example, if you compare steel demand in the EU in 2007 and today, it is still 28% below. We have lost more than 20% of the steel workforce. This is massive. O
ur sector is restructuring. In 2008, we had production capacities of 235 million tonnes in the EU of which 15 million are reduced permanently. A lot of facilities and plants are still idle.
Steel demand is particularly low, compared to pre-crisis levels, for material for the construction sector. It also depends on the region. It is easier in Germany, and more difficult in the east and the south of Europe – such as in Italy, Spain and Greece.
We support the EU institutions program, what Mr. Barosso, and last year, Mr. Juncker promised, to regain a 20 % share of the industry in the EU's GDP. Now, we have around 15%. The other two issues are actually unfair trade practices from steel producing countries outside the EU, and the EU’s unilateral climate and energy policy.
The big issue is China's production. Can you give us an assessment of that problem?
China is building up huge overcapacity. They have had an immense growth of 10 and more percent per year. If you look 10 or 15 years ago, the share of Chinese steel industry in the world was below 10%. Today it is more than 50%. They have capacities for 1.1 billion tonnes, and of that they have 340 million overcapacities. The overcapacities are double the EU's steel production, and more than double the EU's steel demand.
They put these products on the global market and this pushes down the prices globally, not only in Europe but in particular in Europe, because we have the most open market in the world. The US has a much stronger trade defence system. In Europe, you have relatively low dumping margins. The US is quicker and the margins are higher - they can be up to 200 percent or more.
Our objective is free trade. Fair competition, however, is a condition for that. China supports its domestic industry, with subsidies export rebates, by restricting trade and putting trade barriers, and so forth. For that, we are requesting that the EU institutions vigorously enforce our trade defence instruments and approve the Commission’s proposal to modernize them.
The industry rings alarm bells about granting China the status of a market economy. What would that mean in real terms?
The WTO accession protocol for China from 2001 says that China should become a market economy by December 2016. If that happens, anti-dumping measures don’t make sense anymore, because you cannot get real injury margins on their prices. You would have to compare the dumped prices with domestic Chinese prices, but those have all the elements of the state controlled economy. The subsidies, everything that makes steel products artificially cheaper in China, you would have there, and it would be much more difficult to prove dumping. There is, by the way, a very interesting study by Markus Taube, which was published last week, which demonstrates in detail how the Chinese system works. We are almost defenceless.
Q - Is there any way the EU can intervene in this process of granting China market economy status?
A - Well, they simply cannot grant China market economy status. If the Chinese disagree, they have the possibility to go to the WTO panel and ask for the settlement. The Commission is discussing whether it should propose market economy status for China to the Parliament and to the Council. And this would have to be adopted in the legislative procedure.
A huge mistake would be that if the EU agreed to grant China the status, and then later on the Americans do not, then the WTO panel would say there was no need to grant it. Then we would for sure have a problem - the trade difference between the Europe and the US would be ever greater. We would be completely defenceless and that could go as far as to jeopardise a large part of our business. It is an issue of equal importance to us as the EU's reform of the European emissions trading scheme (ETS).
Q - What are the main challenges of ETS reform to the steel industry?
A - The main one is that we need achievable emission targets for our sector. Otherwise no one will be interested in investing in Europe anymore. We proposed, together with other industries, a so-called alliance of the energy intensive industries, to come back to the basic ideas of the ETS directive: CO2 emission reductions, while safeguarding the global competitiveness of industry.
The benchmarks are put at the level of the most efficient installations. Meaning, the average of 10% of the most efficient installations will set the benchmarks and that is 5 out of 100 installations. Those receive 100 % of the free allocation. The other 95 have to buy additional allowances on the market.
The free allocation is going down, and you can't invest because you have even less money than before to reinvest. We say that the incentive is there when the targets are achievable.
So, is it only the benchmarking that is a problem?
The same accounts for the indirect costs, CO2 costs which are passed through by the power sector into their electricity prices to the energy intensive industries. If we have to take 100% of the costs increase due to the CO2, than we have also another competitive disadvantage on the global level.
We are not saying we want to have the protection forever, but we want the most efficient steel plants in Europe to be at a competitive level globally.
If your profit margins are pushed down due to imports, due to fewer domestic demand and due to unilateral ETS costs and other regulatory costs, this is a huge disadvantage. One has to see this holistically. Only one element alone cannot explain why we have a competitive disadvantage with our global competitors.
Q - How much of that do you attribute to the regulatory costs?
A - There is already a famous study by the Commission and CEPS - (an) accumulative costs assessment for the European steel industry, published in 2013. It looked at the regulatory impact on the European steel industry and there you can compare the EU regulatory costs, which they say that in the period 2002-2011 they were 14 euros per ton of steel produced.